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House prices in Lima have risen in Q3 2018

After taking a hit from economic slowdown in 2017, house prices in Lima started to rise again in Q3 2018, supported by an improved economy, lower borrowing costs, and accessible social housing programs. Lima's house prices rose by 3.94% (2.62% in real terms) to PEN 6,310 (US$ 1,891) per square metre (sq. m.) during the year to Q3 2018, according to the Central Reserve Bank of Peru (BCRP).

House price growth in Peru has weakened since 2014, due to the economic slowdown caused by declining copper prices. In 2014, Peru´s economic growth slowed to 2.4%, followed by 3.3% growth in 2015. In 2016 there was 4% growth, but that was followed by another slowdown to 2.5% growth in 2017.

Prior to these recent years, the country had enjoyed strong growth from 2010 to 2013, and the housing market boomed during those years.

The outlook for 2019 is quite positive. Ricardo Arbulú, vice president of the Association of Real Estate Companies of Peru (ASEI) projects house price increases of between 4% and 7% in 2019, depending on the district. Arbulú points out that a factor likely to push up sales prices upward is the shortage of real estate supply.

Foreign residents and nonresidents alike may buy Peruvian property. Investment in Peruvian property does not require government approval, except if such property is close to Peru´s frontiers.

Peru: yields have fallen from excellent to moderate

Property prices in Peru have risen significantly over the past few years.

Apartments in desirable areas like Miraflores, Barranco and San Isidro may cost $2,500-$2,600 per square metre (more for larger apartments) while costs fall to $1,500 per square metre (sq. m.) in areas like Chorrillos.

How much can you earn? Rental yields in Lima are much less good than they used to be. Yields on smaller apartments have fallen over several years from an amazing 13% to around 5% for 100 sq. m. apartments. By regional standards house price to rent ratios in Peru are comparatively high, so you earn more in many other Latin American countries. 4.50%-5.50% is maybe not a bad yield, but it is not great either. Smaller apartments are likely to yield more.

The currency risk. Peru’s Sol depreciated during the period 2013-2015, but has been stable since. Over the past decade it has done much better the Chilean Peso, Brazilean Real, let alone (heaven forbid!) the Argentinian Peso.

Total transaction costs are low in Peru

Total round trip transaction costs, i.e. the total cost of buying and selling a property, are between 6.10% and 9.06%. The biggest cost is the estate agent’s fee, which is between 3% and 5%. Five procedures must be completed to register property, which can be accomplished in about 6 to 16 days.

During the second half of 2017, the negative impact of the "Coastal El Niño" gradually dissipated and domestic demand recovered. However, the growth was still limited due to weaker exports of copper and fish.

The economy stated to pick up again in 2018, as the government focused on rehabilitation of areas and infrastructures affected by "Coastal El Niño". Domestic demand remained strong, backed by a recent minimum wage hike, low inflation, and increasing employment. And while the country faces political uncertainty, Economy and Finance Minister Carlos Oliva said that this has not affected the economy.

"We do not see any impact on the country's economy. Political noise is not good, but what is important is that we are on the way towards finding a solution," according to Minister Oliva.

In December 2018, inflation stood at 2.19%, up from last year's 1.36%. Unemployment was down to 5.7% in November 2018, from 6.5% in the previous year, according to the Central Reserve Bank of Peru (BCRP).